<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 15, 2000
---------------------
VIGNETTE CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 000-25375 74-2769415
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
No.)
901 South Mopac Expressway, Austin, Texas 78746
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(Address of Principal Executive Offices) (Zip Code)
(512) 306-4300 (Registrant's telephone number, including area code)
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1
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective February 15, 2000, Vignette Corporation ("Vignette" or the "Company")
acquired 100 percent of the outstanding stock and assumed all outstanding stock
options of DataSage, Inc. ("DataSage"), a leading provider of e-marketing and
personalization applications that help organizations create a comprehensive
single enterprise-wide view of their customers, in exchange for approximately
3.16 million shares of Vignette common stock. The total cost of the acquisition,
including transaction costs, was approximately $586.5 million. The acquisition
was accounted for as a purchase business combination.
The foregoing description is qualified in its entirety by reference to the
Company's Form 8-K filed with the Securities and Exchange Commission on February
29, 2000 (the "Prior 8-K") and to the Agreement which was attached as Exhibit
2.1 to the Prior 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements and pro forma financial information are being
provided in accordance with the instructions to this item.
(a) Financial Statements of Business Acquired.
Report of Independent Auditors
Consolidated balance sheets of DataSage, Inc. at December 31,
1999 and 1998.
Consolidated statements of operations of DataSage, Inc. for
the years ended December 31, 1999 and 1998.
Consolidated statements of changes in shareholders' deficit of
DataSage, Inc. for the years ended December 31, 1999 and 1998.
Consolidated statements of cash flows of DataSage, Inc. for
the years ended December 31, 1999 and 1998.
(b) Pro Forma Financial Information.
Unaudited pro forma condensed balance sheet as of December 31,
1999 and accompanying explanatory notes.
Unaudited pro forma condensed statement of operations for the
year ended December 31, 1999 and accompanying explanatory
notes.
(c) Exhibits:
Exhibit
Number Description
------- -----------
2.1** Agreement between Vignette Corporation and
DataSage, Inc. dated January 7, 2000
23.1 Consent of Independent Auditors
99.1** Text of Press Release dated February 15, 2000
- -----------------------------
**Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on February 29, 2000.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VIGNETTE CORPORATION
Date: March 30, 2000 By: /s/ Gregory A. Peters
-------------------------------
Gregory A. Peters
President and
Chief Executive Officer
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Report of Independent Auditors
Board of Directors
DataSage, Inc.
We have audited the consolidated balance sheets of DataSage, Inc. (the
"Company") as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of DataSage, Inc. at
December 31, 1999 and 1998, and the consolidated results of their operations and
their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Austin, Texas
February 4, 2000
4
<PAGE>
DATASAGE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of share data)
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 24,002 $ 4,397
Accounts receivable, net of allowance of $301 and $25 at
December 31, 1999 and 1998, respectively 1,173 83
Prepaid expenses and other current assets 34 37
--------------------------------------
Total current assets 25,209 4,517
Property and equipment, net 1,355 525
Intangible assets, net of accumulated amortization of
$335 at December 31, 1999 7,767 -
Other assets 47 43
--------------------------------------
Total Assets $ 34,378 $ 5,085
======================================
Liabilities, redeemable convertible preferred stock and
shareholders' deficit
Current liabilities:
Current portion of notes payable to shareholders $ 64 $ 64
Accounts payable and accrued expenses 2,168 465
Deferred revenue 307 25
Capital lease obligations 140 55
--------------------------------------
Total current liabilities 2,679 609
Long-term portion of notes payable to shareholders - 24
Convertible debt 1,000 -
Capital lease obligations, less current portion 220 106
--------------------------------------
Total Liabilities 3,899 739
Commitments
Redeemable convertible preferred stock, $0.01 par value;
15,000,000 shares authorized:
Series A; 3,469,233 shares issued and outstanding 2,819 2,819
Series B; 7,761,965 shares and 7,711,965 shares issued
and outstanding in 1999 and 1998, respectively 6,986 6,941
Series C; 3,528,487 shares issued and outstanding in 1999 23,500 -
Shareholders' deficit:
Common stock, $.01 par value; 15,000,000 shares authorized; 5,789,750 and
4,945,520 shares issued and 5,489,750 and 4,645,520 shares outstanding in 1999
and 1998, respectively 57 49
Additional paid-in capital 64,549 31
Deferred stock compensation (30,041) -
Note receivable for purchase of common stock (52) (65)
Treasury stock, 300,000 shares of common stock, at cost (15) (15)
Accumulated deficit (37,324) (5,414)
--------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholders' deficit (2,826) (5,414)
--------------------------------------
Total Liabilities, redeemable convertible preferred stock
and shareholder's deficit $ 34,378 $ 5,085
======================================
</TABLE>
See accompanying notes
6
<PAGE>
DATASAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Years ended
December 31,
1999 1998
-------------------------------------
<S> <C> <C>
Net revenues:
License revenues $ 2,607 $ 169
Service revenues 2,726 737
-------------------------------------
Total net revenues 5,333 906
Cost of service revenues 2,098 827
-------------------------------------
Gross margin 3,235 79
Costs and expenses:
Research and development 3,461 1,762
Sales and marketing 3,270 1,563
General and administrative 1,432 645
Amortization of deferred stock compensation and stock
compensation expense 3,486 -
-------------------------------------
Total operating expenses 11,649 3,970
-------------------------------------
Loss from operations (8,414) (3,891)
Interest income, net 4 10
-------------------------------------
Net loss $ (8,410) $(3,881)
Less accretion of beneficial conversion feature related to
Series C redeemable convertible preferred stock (23,500) -
Net loss applicable to common shareholders $(31,910) $(3,881)
=====================================
</TABLE>
See accompanying notes
7
<PAGE>
DATASAGE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Note
Common stock Additional Treasury stock Deferred Receivable
------------------- paid-in ------------------ Stock for Purchase
Shares Amount capital Shares Amount Compensation of Common Stock
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1997 4,210,520 $42 $ 68 (300,000) $ (15) -
Issuance of note receivable for
purchase of common stock 725,000 7 58 - - - $ (65)
Issuance costs related to Series B
redeemable convertible preferred
stock - - (95) - - - -
Exercise of stock options 10,000 - - - - - -
Net loss - - - - - - -
-------------------------------------------------------------------------------------------
Balances as of December 31, 1998 4,945,520 49 31 (300,000) (15) - (65)
Payments received on note
receivable - - - - - - 13
Stock issued for acquisition of
business 741,300 7 7,472 - - - -
Issuance costs related to Series C
redeemable convertible preferred
stock - - (99) - - - -
Accretion of beneficial conversion
feature related to convertible
debt - - 111 - - - -
Beneficial conversion feature
related to Series C redeemable
convertible preferred stock - - 23,500 - - - -
Exercise of stock options 102,930 1 7 - - - -
Accretion of beneficial conversion
feature related to Series C
redeemable convertible preferred
stock - - - - - - -
Deferred stock compensation
related to stock options and
restricted stock - - 30,545 - - $(30,545) -
Amortization of deferred stock
compensation and stock
compensation expense - - 2,982 - - 504 -
Net loss - - - - - - -
-------------------------------------------------------------------------------------------
Balances as of December 31, 1999 5,789,750 $57 $64,549 (300,000) $(15) $(30,041) $(52)
===========================================================================================
<CAPTION>
Accumulated
Deficit Total
---------------------------
<S> <C> <C>
Balance as of December 31, 1997 $ (1,533) $ (1,438)
Issuance of note receivable for
purchase of common stock - -
Issuance costs related to Series B
redeemable convertible preferred
stock - (95)
Exercise of stock options - -
Net loss (3,881) (3,881)
---------------------------
Balances as of December 31, 1998 (5,414) (5,414)
Payments received on note
receivable - 13
Stock issued for acquisition of
business - 7,479
Issuance costs related to Series C
redeemable convertible preferred
stock - (99)
Accretion of beneficial conversion
feature related to convertible
debt - 111
Beneficial conversion feature
related to Series C redeemable
convertible preferred stock - 23,500
Exercise of stock options - 8
Accretion of beneficial conversion
feature related to Series C
redeemable convertible preferred
stock (23,500) (23,500)
Deferred stock compensation
related to stock options and
restricted stock - -
Amortization of deferred stock
compensation and stock
compensation expense - 3,486
Net loss (8,410) (8,410)
---------------------------
Balances as of December 31, 1999 $(37,324) $(2,826)
===========================
</TABLE>
See accompanying notes
8
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DATASAGE, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended
December 31,
1999 1998
--------------------------------
<S> <C> <C>
Cssh flows from operating activities
Net loss $ (8,410) $ (3,881)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 523 94
Amortization of deferred stock compensation and stock compensation expense 3,486 -
Accretion of beneficial conversion feature on convertible debt 111 -
Loss on disposal of property and equipment - 9
Changes in assets and liabilities:
Accounts receivable (1,049) (59)
Prepaid expenses and other assets (1) 7
Accounts payable and accrued expenses 1,473 175
Deferred revenue 272 (44)
--------------------------------
Net cash used in operating activities $ (3,595) (3,699)
--------------------------------
Cash flows from investing activities
Purchases of property and equipment (702) (391)
Purchase of business, net of cash acquired (429) -
--------------------------------
Net cash used in investing activities (1,131) (391)
--------------------------------
Cash flows from financing activities
Proceeds from issuance of convertible debt 1,000 -
Payments received on note receivable for purchase of common stock 13 -
Principal payments on notes payable to shareholders (24) (48)
Proceeds from Series B redeemable preferred stock, net of issuance costs 40 6,845
Proceeds from Series C redeemable preferred stock, net of issuance costs 23,406 -
Proceeds from exercise of stock options 8 1
Proceeds from the sale of fixed assets - 207
Principal payments on capital lease obligations (112) (46)
--------------------------------
Net cash provided by financing activities 24,331 6,959
--------------------------------
Net increase in cash and cash equivalents 19,605 2,869
Cash and cash equivalents at beginning of period 4,397 1,528
--------------------------------
Cash and cash equivalents at end of period $ 24,002 $ 4,397
================================
Supplemental disclosure of cash flow information
Cash paid for interest $ 74 $ 56
================================
Supplemental schedule of noncash investing and financing activities
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Issuance of 725,000 shares of restricted common stock in exchange for note
receivable - $ 65
===================================
Capital lease obligations entered to acquire property and equipment $ 307 $ 216
===================================
</TABLE>
See accompanying notes
10
<PAGE>
DATASAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Nature of the Business and Financial Statement Presentation
DataSage, Inc. (the "Company") was incorporated as Cirrus Recognition Systems,
Inc. on April 11, 1994 in the Commonwealth of Massachusetts. Upon receiving its
first round of third party financing on June 12, 1997, the Company changed its
name to DataSage, Inc. The Company develops a high performance data mining
software product based on its proprietary pattern recognition technology. The
Company has marketed its product initially to the retail industry. The Company
has also licensed certain of its pattern recognition technology to other
software developers for various applications. The Company's customers are
primarily within the U.S.
2. Summary of Significant Accounting Policies
Cash Equivalents
Cash equivalents consist primarily of cash deposits and money market investments
with original maturities of 90 days or less when purchased.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-
line method over their estimated useful lives, which range from 3 to 7 years or,
in the case of leasehold improvements, over the shorter of their estimated
useful lives or the remaining life of the lease. Depreciation expense was
approximately $188,000 and $94,000 for the years ended December 31, 1999 and
1998, respectively.
Financial Instruments
The Company's financial instruments, which include cash and cash equivalents,
accounts receivable, accounts payable, and accrued expenses, are carried at cost
which approximates fair market value at the balance sheet date. It is not
practicable to estimate the fair market value of notes payable to shareholders
as they are with related parties.
Consolidation
The Company consolidates its two wholly owned subsidiaries, DataSage Securities
Corporation and DataSage Acquisition Corporation. All intercompany balances
have been eliminated in consolidation.
Revenue Recognition
The Company accounts for its software revenues in accordance with Statement of
Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-4 and
SOP 98-9. SOP 97-2 and SOP 98-4 were adopted effective January 1, 1998, and did
not have a material impact on the Company's financial results. The Company does
not believe that the full adoption of SOP 98-9 effective January 1, 2000 will
have a material impact on the Company's financial condition and results of
operations.
The Company's revenues are derived primarily from license fees for its pattern
recognition technology, sales of software products including
11
<PAGE>
software maintenance and post-contract customer support, and consulting
revenues. License fees and product sales are recognized when persuasive evidence
of an agreement exists, shipment of the product has occurred, no significant
vendor obligations remain, the fee is fixed and determinable and collection is
probable. Maintenance and post-contract support revenues are recognized ratably
over the contractual periods for which the services are provided. Revenues from
consulting contracts are recognized over the term of the contract using the
percentage-of-completion method of accounting. Such estimates of percentage
complete are periodically reviewed against the attainment of contractually
agreed-upon milestones. If the estimate of costs to be incurred on a contract
indicates a loss, such loss is provided for currently in its entirety.
Customer advances and billed amounts due from customers in excess of revenue
recognized are recorded as deferred revenue.
Stock-Based Compensation
Stock-based awards to employees are accounted for in accordance with Accounting
Principles Board Opinion No. 25 and related interpretations ("APB 25");
accordingly, no compensation expense is recorded for options awarded to
employees with exercise prices equal to or in excess of the stock's fair value
on the date of grant and where the number of shares and exercise price are
fixed. Additionally, the Company complies with the disclosure requirements of
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
Software Development Costs
Costs incurred in the research and development of the Company's products are
expensed as incurred. Costs associated with the development of computer software
are expensed prior to the establishment of technological feasibility (as defined
by SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed") and capitalized thereafter when material to the
Company's financial position or results of operations. As of and for the period
since inception through December 31, 1999, no software development costs have
been capitalized since costs eligible for capitalization under SFAS No. 86 were
insignificant.
Intangible Assets
Intangible assets consist of the excess of purchase price over net tangible
assets acquired. Intangible assets are being amortized using the straight-line
method over a three year period.
The Company periodically reviews the carrying amounts of property and equipment,
identifiable intangible assets and excess of cost over fair value of net assets
acquired both purchased in the normal course of business and acquired through
acquisition to determine whether current events or circumstances, as defined in
Financial Accounting Standards Board No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, warrant
adjustments to such carrying amounts by considering, among other things, the
future cash inflows expected to result from the use of the asset and its
eventual disposition less the future cash outflows expected to be necessary to
obtain those inflows. At this time, future cash inflows exceed future cash
outflows;
12
<PAGE>
thus, no impairment loss has been recognized. Management reviews the valuation
and amortization periods of excess of cost over fair value of net assets
acquired on a periodic basis, taking into consideration any events or
circumstances which might result in diminished fair value or revised useful
life. No events or circumstances have occurred to warrant a diminished fair
value or reduction in the useful life of excess of cost over fair value of net
assets acquired.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and the tax basis of assets and liabilities
using currently enacted tax rates. A valuation allowance against deferred tax
assets is recorded if, based upon the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from those estimates and such differences may be material to the
financial statements.
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
established new rules for the reporting and display of comprehensive income
(loss) and its components. There was no comprehensive income (loss) items for
the years ended December 31, 1999 and 1998.
Internally Used Computer Software
The Company adopted SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1") during the year ended
December 31, 1999. SOP 98-1 requires that entities capitalize certain costs
related to internal-use software once certain criteria have been met. Such
adoption of SOP 98-1 did not have a material impact on the Company's financial
condition or results of operations.
3. Concentrations of Credit Risk and Significant Customers
Cash, cash equivalents and accounts receivable potentially expose the Company to
concentrations of credit risk, as defined by SFAS 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk". Excess cash is
primarily invested in money market funds of major financial institutions. The
Company provides credit, in the normal course of business, to a number of
customers geographically dispersed throughout the U.S. The Company performs
ongoing credit evaluations of its customers and maintains allowances for
potential credit losses.
13
<PAGE>
The following table summarizes the changes in the allowance for doubtful
accounts for 1999 and 1998 (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1997 $ -
Additions charged to costs and expenses 25
Write-off of uncollectible accounts -
-----------------
Balance at December 31, 1998 25
Additions charged to costs and expenses 276
Write-off of uncollectible accounts -
-----------------
Balance at December 31, 1999 $301
==================
</TABLE>
Sales to individual customers constituting 10% or more of total revenues for
each year were as follows (in thousands):
<TABLE>
<CAPTION>
December 31
-----------------------------
1999 1998
-----------------------------
<S> <C> <C>
Customer 1 $2,580 $ -
Customer 2 1,045 -
Customer 3 - 327
Customer 4 - 202
Customer 5 - 135
Customer 6 - 125
Customer 7 - 100
</TABLE>
4. Property and equipment
Property and equipment are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------------
(in thousands)
<S> <C> <C>
Computer equipment and software $1,657 $ 610
Furniture, fixtures and office equipment 90 125
Leasehold improvements 27 20
---------------------------------
1,774 755
Less accumulated depreciation and
amortization (419) (230)
---------------------------------
$1,355 $ 525
=================================
</TABLE>
Property and equipment include leased equipment under long-term agreements which
are classified as capital leases. Property and equipment includes the following
leased property at December 31,1999:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
------------------------------
(in thousands)
<S> <C> <C>
Computer equipment and software $ 515 $ 207
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Office equipment 8 0
------------------------------
523 207
Less accumulated depreciation and amortization (88) (42)
------------------------------
$ 435 $ 165
==============================
</TABLE>
5. Notes Payable to Shareholders
Notes payable to shareholders are unsecured and consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
----------------------------------------------
(in thousands)
<S> <C> <C>
Note payable to a shareholder requiring payment at
maturity of principal plus interest at an annual
interest rate of 7.5%; note matures January 1,
2000 $ 40 $ 40
Note payable to a shareholder requiring annual
principal payments of $23,800 plus interest at an
annual interest rate of 5%, maturing December 31,
2000 24 48
----------------------------------------------
64 88
----------------------------------------------
Less current portion 64 64
----------------------------------------------
$ - $ 24
==============================================
</TABLE>
6. Convertible Debt
During 1999, the Company entered into a line of credit which allows for
borrowings up to $3,000,000 and is convertible into shares of the Company's
common stock. At December 31, 1999, the Company had borrowed $1,000,000, such
amount is due in a balloon payment of principal and interest at maturity in
October 2003. Interest is due periodically and accrues at an annual rate of
10%. Interest expense recognized in 1999 and 1998 was approximately $16,700 and
$0, respectively.
The lender has the right to convert up to 25% of the aggregate principal amount
borrowed into fully paid and nonassessable shares of the Company's common stock.
The number of shares into which the debt is convertible is a function of the
qualified transaction price or $6.66 received in the Series C preferred stock
issuance. This formula provides for a return to the holder of the convertible
debt of approximately $111,000 based on the borrowings outstanding. The maximum
possible premium to holders of the convertible debt was recognized as a
beneficial conversion feature in 1999. This beneficial conversion feature has
been recognized as interest expense in the statement of operations. In
addition, the Company is permitted to convert 25% of the outstanding principal
amount owed under the note into shares of the Company's common stock upon a
qualified public offering.
15
<PAGE>
7. Income Taxes
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $8,108,000 and research and development credit
carryforwards of approximately $166,000. The net operating loss and credit
carryforwards will expire beginning in 2012, if not utilized.
Utilization of the net operating losses and credit carryforwards may be subject
to a substantial limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credit carryforwards before utilization.
From commencement through June 12, 1997, the Company had elected to be treated
as an S Corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended. As such, federal income taxes were the responsibility of the
individual shareholders. Concurrent with the Company's preferred stock
issuance, the Company's Subchapter S status was terminated. The immediate tax
effect of the termination of the S Corporation election was not material.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred taxes as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciable assets $ (104) $ (62)
-------------------------------------------------
(104) (62)
Deferred tax assets:
Tax carryforwards 3,433 2,034
Bad debts 121 10
Accrued liabilities 259 26
Deferred revenue 96 -
Stock compensation 21 -
-------------------------------------------------
Total deferred tax assets 3,930 2,070
-------------------------------------------------
Valuation allowance for net deferred tax asset (3,826) (2,008)
-------------------------------------------------
Net deferred tax assets 104 62
-------------------------------------------------
Net deferred taxes $ - $ -
=================================================
</TABLE>
The Company has established a valuation allowance equal to the net deferred tax
assets due to uncertainties regarding the realization of deferred tax assets
based on the Company's lack of earnings history. The valuation allowance
increased by approximately $1,818,000 in 1999.
The Company's provision for income taxes differs from the tax expense (benefit)
amount computed by applying the statutory federal income tax rate of 34% to
income before income taxes primarily as a result of the application of a
valuation allowance.
16
<PAGE>
8. Acquisition
On November 16, 1999 the Company acquired all of the outstanding stock of Online
Development Corporation ("ODC")in exchange for 741,300 newly issued shares of
the Company's common stock and cash of $430,000. The acquisition was accounted
for using the purchase method of accounting, and accordingly, the results of
operations of ODC have been included in the consolidated results of operations
of the Company from the date of acquisition. The total purchase price for ODC
was $7,977,000 based on the value of the shares of the Company's common stock
issued of $7,479,000, cash of $430,000 and related acquisition costs of $68,000.
The excess of purchase price over the tangible net liabilites acquired was
allocated to goodwill. This acquisition resulted in goodwill of approximately
$8,102,000. Amortization expense for 1999 was approximately $335,000.
9. Redeemable Convertible Preferred Stock
The Company is authorized to issue 15,000,000 shares of preferred stock. At
December 31, 1999, 3,469,233, 7,761,965, and 3,528,487 shares of Series A,
Series B, and Series C redeemable convertible preferred stock were issued and
outstanding, respectively.
The Series A, Series B, and Series C preferred stock has the following
characteristics:
Voting
Holders of preferred stock are entitled to the number of votes equal to the
number of common shares into which the shares of preferred stock are
convertible. The holders of preferred stock and common stock vote together as a
single class on all matters.
Dividends
Holders of preferred stock are entitled to receive, out of funds legally
available, dividends when and if declared by the Board of Directors, prior to
the payment of any dividends to the holders of the Company's common stock.
Through December 31, 1999, no dividends had been declared.
Liquidation Preference
The holders of preferred stock rank equally, up to their respective original
issue prices, with respect to any such distribution resulting from any
liquidation, dissolution or winding-up of the Company. If the assets of the
Company are insufficient to pay the holders of preferred stock the full amount
of the liquidation preference to which they are entitled, the holders of each
series of the preferred stock share ratably in any distribution of assets in
proportion to the original amount invested by each of the holders of the Series
A preferred stock, Series B preferred stock, and Series C preferred stock.
The holders of Series C preferred stock are entitled to receive, prior to and in
preference to the holders of common stock, a "Series C Preferred Liquidation
Amount" of $6.66 per share plus all declared and unpaid dividends.
17
<PAGE>
The holders of Series B preferred stock are entitled to receive, prior to and in
preference to the holders of common stock, a "Series B Preferred Liquidation
Amount" of $0.90 per share, plus all declared and unpaid dividends.
The holders of Series A preferred stock are entitled to receive prior to and in
preference of the holders of common stock, the Series A original issue price of
$0.8125 per share. Following this payment and payment of the Series B Preferred
Liquidation Amount, the holders of Series A preferred stock and common stock
shall share ratably in the remaining assets of the Company until the holders of
Series A preferred stock receive an additional sum of $2.4375 per share, or an
aggregate total of $3.25 per share (the "Series A Preferred Liquidation
Amount"). If the amount payable to the Series A preferred shareholders exceeds
$3.25 per share under this calculation, the holders of Series A preferred stock
shall receive an amount per share as would be payable had each share of Series A
preferred stock been converted to common stock immediately prior to such event.
After the payments of the Series A Preferred Liquidation Amount and the Series B
Preferred Liquidation Amount have been made in full, holders of preferred stock
are not entitled to further participation in the distribution of the assets of
the Company. The remaining assets of the Company will be distributed ratably
among the holders of common stock.
Conversion
Each share of Series A, Series B, and Series C preferred stock may be converted,
at the option of the shareholder, into one share of common stock, subject to
adjustment for stock splits and certain anti-dilution provisions. The Series A,
Series B and Series C preferred stock is automatically converted into common
stock upon the closing of an initial public offering of the Company's common
stock or a qualified event.
At the issuance of the Series C preferred stock in December 1999, the deemed
fair value per share of the Company's common stock was greater than the price
per share of the Series C prefered stock paid by the Series C shareholders.
Accordingly, there is a beneficial conversion feature or discount on Series C
preferred stock in the amount of $68.0 million. However, the amount recorded is
limited to the proceeds received, or $23.5 million. Such beneficial conversion
feature or discount was immediatley accreted or recognized as a preferred stock
dividend as the Series C preferred stock was convertible immediately.
Redemption
Commencing at any time on or after June 1, 2003, subject to written election of
the holders of at least 60% of the outstanding shares of Series A, Series B, and
Series C preferred stock, the Company shall redeem the then-outstanding shares
in equal annual installments over a three-year period at the respective original
issue price per share (adjusted for stock splits and certain anti-dilution
provisions) plus any declared but unpaid dividends.
10. Shareholders' Deficit
18
<PAGE>
Common Stock
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's shareholders. Common shareholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to the preferential dividend rights of the Series A, Series
B, and Series C preferred shareholders.
Restricted Stock Agreement and Note Receivable for Purchase of Common Stock
The Company has entered into a stock restriction agreement with an officer of
the Company for the purchase of 725,000 shares of common stock. The agreement
provides that, in the event the Company no longer employs this individual, the
Company has the right to repurchase any or all unvested shares at their original
issue price. These restrictions lapse 20% on the first anniversary of the note,
November 16, 1999, and the remaining ratably quarterly over the remaining four-
year period. Of these restricted common shares, 145,000 vested in November 1999
and 36,250 shares vest quarterly thereafter. At December 31, 1999, 580,000
shares of common stock were subject to repurchase by the Company.
In December 1998, the Company extended a loan to an officer of the Company in
the amount of $65,250 with interest payable at 4.52% per annum. The note was
used to finance the purchase of 725,000 shares of the restricted common stock
and is collateralized by those shares. The principal balance of the note plus
all accrued but unpaid interest is due in December 2003. During 1999, $13,100
was repaid. The common stock purchased by the officer is being accounted for as
a variable grant. The Company recorded stock compensation expense of
approximately $2.9 million related to the shares which vested on the first
anniversary date. The amount recorded as stock compensation expense for the
vested shares represents the difference between the purchase price and the
deemed fair value of the Company's common stock at the vesting date, November
16, 1999. The Company recorded deferred stock compensation of approximately
$11.6 million related to unvested shares at December 31, 1999. The amount
recorded as deferred stock compensation for the unvested shares represents the
difference between the purchase price and the deemed fair value of the Company's
common stock at December 31, 1999.
Treasury Stock
Concurrent with the Series A preferred stock financing in June 1997, the Company
repurchased 300,000 shares of common stock from the Company's founder at a
purchase price of $0.05 per share. Such treasury stock has been recorded at
cost.
Stock Option Plans
In November 1996, the Company adopted the 1996 Stock Option Plan, which provided
for the grant of incentive stock options and non-qualified options for the
purchase of up to 600,000 shares of the Company's common stock.
The incentive stock options may be granted to employees of the Company and the
non-qualified Options may be granted to employees, non-employee directors and
consultants as authorized by the Board of Directors.
19
<PAGE>
In June 1997, the Company adopted the 1997 Stock Option Plan (the "Plan"),
Concurrent with the Series B preferred stock financing in October 1998, the
Board amended the Plan to increase the number of options available for the
purchase of shares of the Company's common stock to 3,560,000. On December 9,
1999 the Company's board of directors amended the Plan to increase the number of
options available for the purchase of shares under the plan to 3,937,000. The
total option pool includes 348,000 incentive stock options, which were granted
through June 1997 under the 1996 Stock Option Plan. The Board determines the
term of each option, the option exercise price, the number of shares for which
each option is granted and the rate at which each option is exercisable.
Incentive stock options may be granted to any employee at an exercise price per
share of not less than the fair value of the common stock of the date of the
grant (110% of the fair value for shareholders who hold greater than 10% of the
combined classes of stock) and with a term not to exceed ten years from the date
of the grant (five years for greater than 10% shareholders).
For purposes of pro forma disclosure, the fair value of each option grant was
estimated on the date of grant using the minimum value option pricing model with
the following assumptions for grants in 1999 and 1998: no dividend yield; near
zero volatility; risk-free interest rates ranging from 4.23% to 6.28%; and
expected lives of 5 years.
The effect of applying SFAS 123 to the Company's stock option awards did not
result in pro forma net loss that was materially different from historical
amounts, reported. Therefore, such pro forma information is not separately
presented herein. Future pro forma net income (loss) results may be materially
different from actual amounts reported.
A summary of the status of stock options granted under the Plan as of
December 31, 1999 and 1998 and changes during the years then ended are presented
below:
<TABLE>
<CAPTION>
Shares Price Per Share Weighted Average
Exercise Price Per
Share
<S> <C> <C> <C>
Options outstanding December 31, 1997 986,660 $0.05 - $0.09 $0.08
Granted 1,091,750 $ 0.09 -$0.12 0.09
Exercised (10,000) $ 0.05 0.05
Surrendered (515,360) $ 0.09 0.09
--------------------------------------------------------------------
Options outstanding December 31, 1998 1,553,050 $0.05 - $0.12 0.08
Granted 1,549,000 $0.09 - $0.60 0.38
Exercised (102,930) $ 0.09 0.09
Surrendered (102,020) $0.05 - $0.60 0.09
--------------------------------------------------------------------
Outstanding at December 31, 1999 2,897,100 $0.05 - $0.60 $0.24
--------------------------------------------------------------------
</TABLE>
The following table provides summarized information about stock options
outstanding under the Plan at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
Weighted-Average Options Exercisable
<S> <C> <C>
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Remaining
Range of Number Contractual Lives Weighted-Average Number Weighted-Average
Exercise Price Outstanding (Years) Exercise Price Exercisable Exercise Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.05 270,000 6.9 $0.05 238,609 $0.05
0.09 - 0.12 1,143,350 8.3 0.09 481,410 0.09
0.25 - 0.60 1,483,750 9.7 0.39 103,435 0.58
---------------- ---------------
2,897,100 823,454
================ ===============
</TABLE>
There were 823,454 and 402,351 options exercisable as of December 31, 1999 and
1998, respectively.
Options granted by the Company generally vest ratably over 5 years and expire in
10 years.
At December 31, 1999, the Company has reserved 3,099,070 shares of common stock
for the future exercise of stock options, and has 201,970 options available for
grant.
Deferred Stock Compensation
In 1999, the Company granted 9,000 options to certain non-employees which vested
immediately. In connection with such grants, the Company recognized stock
compensation expense of $26,000 based on the Black-Scholes pricing model, using
a volatility factor of 50%, a risk-free interest rate of 5.70%, a dividend yield
of -0-%, and an expected life of 1 year.
In 1998, the Company granted 10,000 options to certain non-employees which vest
ratably over 2 years. In connection with the vesting of 5,000 and 1,250 options
in 1999 and 1998 respectively, the Company recorded stock compensation expense
of approximately $43,000 an $0 in 1999 and 1998, respectively. At December 31,
1999 the Company recorded deferred stock compensation of approximately $75,000
related to the 3,750 unvested options. The amounts recorded were based on the
Black-Scholes pricing model, using a volatility factor of 50%, a risk-free
interest rate of 5.70%, a dividend yield of -0-%, and an expected life of 1
year.
The Company recorded deferred stock compensation of approximately $18.8 million
in 1999. The amount recorded represents the difference between the grant price
and the deemed fair value of the Company's common stock for shares subject to
options granted in 1999. A total of 1,542,500 shares were granted below deemed
fair value and the exercise prices and deemed fair values ranged from $0.09 to
$6.00 per share and $0.40 to $20.18 per share, respectively. The deferred stock
compensation is amortized over the vesting period of each respective option,
generally five years. Approximately $504,000 was recorded as compensation
expense in 1999.
The Company has also granted the right to an employee to purchase up to 25,000
shares of common stock, dependent upon certain future events. Such options, if
vested, will have an exercise price per share equal to the fair value of the
Company's common stock on the date which events occur, and will be exercisable
over a five year period.
21
<PAGE>
11. Commitments
The Company leases its office space and certain office equipment under
noncancelable operating leases. Total rent expense under these operating leases
was approximately $241,000 and $136,000, for the years ended December 31, 1999
and 1998, respectively.
In December 1997, the Company obtained a commitment from a lessor to establish
lease agreements under which the Company may borrow up to $700,000 to finance
property and equipment purchases. The initial term of each borrowing under the
line of credit is 36 months from the borrowing date, with payments made monthly,
including interest at approximately 20% per annum. At the end of the term of
each borrowing, the Company has the option to extend the borrowing for an
additional five months at the same monthly payment, or pay a lump sum amount
equal to 15% of the original purchase price of the assets; otherwise, the assets
revert to the lender. All borrowings under the lease agreements are
collateralized by the fixed assets acquired. At December 31, 1999, $515,000 has
been borrowed and $185,500 remained available under this lease committment.
Future minimum lease commitments at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------------------------
<S> <C> <C>
2000 $ 244 $ 204
2001 103 169
2002 13 75
---------------------------
Total $ 360 448
==========
Less: amount representing interest 88
----------
Present value of minimum lease payments $ 360
==========
</TABLE>
12. Subsequent Events
On February 15, 2000 the Company was acquired by Vignette Corporation
("Vignette") for approximately 3.16 million shares of Vignette common stock. All
of the common and preferred stock of the Company were exchanged for Vignette
common stock based on a ratio of 0.1266 shares of Vignette common stock for each
share of the Company's stock. The Company's option plan was assumed by Vignette
based on the same exchange ratio.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Effective February 15, 2000, Vignette Corporation ("Vignette" or the "Company")
acquired 100 percent of the outstanding stock and assumed all outstanding stock
options of DataSage, Inc. ("DataSage"), a leading provider of e-marketing and
personalization applications that help organizations create a single enterprise-
wide view of their customers, in exchange for approximately 3.16 million shares
of Vignette common stock. The total cost of the acquisition, including
transaction costs, was approximately $586.5 million. The acquisition was
accounted for as a purchase business combination.
Attached are the unaudited pro forma condensed financial statements, which
include the unaudited pro forma condensed balance sheet as of December 31, 1999
and the unaudited pro forma condensed statement of operations of the Company and
DataSage for the year ended December 31, 1999, and related notes thereto. The
unaudited pro forma condensed balance sheet assumes the acquisition had been
consummated on December 31, 1999. The unaudited pro forma condensed statement
of operations, including the weighted average number of shares used in the
calculation of the pro forma per share data, assume the acquisition had been
consummated on January 1, 1999. The unaudited pro forma condensed financial
information reflects the allocation of the purchase price of DataSage based upon
current estimates of the fair values of assets acquired and liabilities assumed.
The final allocation of the purchase price may vary as additional information is
obtained and, accordingly, the ultimate allocation may differ from that used in
the unaudited pro forma condensed financial information.
The unaudited pro forma condensed financial statements are based on the
historical financial statements of the Company and DataSage. They are not
necessarily indicative of the combined entity's operations had the acquisition
actually occurred on the dates indicated, nor are they necessarily indicative of
future operations. The pro forma adjustments and the assumptions on which they
are based are described in the accompanying notes to these statements.
The unaudited pro forma condensed financial statements are based on and should
be read in conjunction with the historical consolidated financial statements and
related notes thereto of the Company and the historical consolidated financial
statements and notes thereto of DataSage for the year ended December 31, 1999.
23
<PAGE>
VIGNETTE CORPORATION
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Vignette DataSage Adjustments Pro Forma
Historical Historical (Note 2) Combined
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short term
investments $402,229 $24,002 $ (1,000)(a) $ 425,231
Accounts receivable, net 45,065 1,173 - 46,238
Prepaid expenses and other 5,588 34 - 5,622
-------- ------- ----------- -------------
Total current assets 452,882 25,209 (1,000) 477,091
Property and equipment, net 11,059 1,355 - 12,414
Investments 27,011 - - 27,011
Intangibles, net 20,467 7,767 520,394 (b)
(7,767)(d) 540,861
Other assets 3,311 47 - 3,358
-------- ------- ----------- -------------
Total assets $514,730 $34,378 $511,627 $ 1,060,735
======== ======= =========== =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 31,074 $ 2,232 - $ 33,306
Deferred revenue 44,846 307 - 45,153
Current portion of long-term
debt and capital lease 254 140 - 394
Other current liabilities 1,497 - - 1,497
-------- ------- ----------- -------------
Total current liabilities 77,671 2,679 - 80,350
Long-term debt and capital
lease, less current portion - 1,220 - 1,220
-------- ------- ----------- -------------
Total liabilities 77,671 3,899 - 81,570
Redeemable convertible
preferred stock - 33,305 (33,305)(c)
Shareholder's equity (deficit) 437,059 (2,826) 585,506 (a)
2,826 (c)
(43,400)(b) 979,165
Total liabilities and stock --------- -------- -------- -------------
holders' equity (deficit) $514,730 $34,378 $511,627 $ 1,060,735
========= ======== ======== =============
</TABLE>
24
<PAGE>
VIGNETTE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Vignette DataSage Adjustments Pro Forma
Historical Historical (Note 3) Combined
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue:
Product license $ 46,292 $ 2,607 - $ 48,899
Services 42,893 2,726 - 45,619
-------- ------- ----------- ---------
Total revenue 89,185 5,333 - 94,518
Cost of revenue:
Product license 3,306 - - 3,306
Services 33,488 2,098 - 35,586
-------- ------- ----------- ---------
Total cost of revenue 36,794 2,098 - 38,892
Gross profit 52,391 3,235 - 55,626
Operating expenses:
Research and development 16,447 3,461 - 19,908
Sales and marketing 49,559 3,270 - 52,829
General and administrative 9,494 1,432 - 10,926
Purchased in-process research
and development, acquisition-
related, and other charges 15,641 - - 15,641
Amortization of deferred
stock compensation 5,654 3,486 - 9,140
Amortization of intangibles 1,796 - $ 173,465 (a) 175,261
-------- ------- ----------- ---------
Total operating expenses 98,591 11,649 173,465 283,705
-------- ------- ----------- ---------
Loss from operations (46,200) (8,414) (173,465) (228,079)
Other income, net 3,723 4 - 3,727
-------- ------- ----------- ---------
Net loss $(42,477) $(8,410) $(173,465) $(224,352)
======== ======= =========== =========
Basic net loss per share $(0.93) $(4.64)
======== =========
Shares used in computing
basic net loss per share 45,751 48,340
======== =========
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. GENERAL
The Company will account for the acquisition as a purchase business
combination. The accompanying unaudited pro forma condensed financial
statements reflect an estimated aggregate purchase price of approximately
$586.5 million, consisting of the fair value of common stock issued ($585.5
million) as well as transaction costs ($1.0 million).
2. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The accompanying unaudited pro forma condensed balance sheet has been
prepared as if the acquisition was consummated on December 31, 1999. Pro
forma adjustments were made:
(a) To record consideration given in acquisition of DataSage:
Stock given to DataSage shareholders and
option holders $585,506
Transaction costs 1,000
--------
Total purchase price $586,506
========
(b) To record allocation of purchase price to the assets of DataSage:
<TABLE>
<CAPTION>
<S> <C>
In-process research and development $ 43,400
Acquired technology 4,000
Workforce 3,300
Trademark 800
Excess of cost over fair value of net
assets acquired 512,294
Net fair value of tangible assets
acquired and liabilities assumed 22,712
--------
Net assets acquired $586,506
========
</TABLE>
The allocation of the purchase price to in-process research and
development, acquired technology, workforce and trademarks was based
upon an independent valuation.
(c) To record elimination of DataSage's shareholder's equity.
(d) To record elimination of DataSage's historical intangible assets.
26
<PAGE>
3. UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The accompanying unaudited pro forma condensed statement of operations has
been prepared as if the acquisition was consummated as of January 1, 1999.
Pro forma adjustments were made to reflect the:
(a) Amortization of acquired intangibles, with amortization periods of
three years for amounts allocated to acquired technology, workforce,
trademark, and the excess of cost over fair value of net assets
acquired.
The accompanying unaudited pro forma condensed statement of operations does not
reflect the one-time impact of the charge for purchased in-process research and
development of $43.4 million recorded by the Company in connection with the
acquisition.
27
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-72877) pertaining to the 1999 Equity Incentive Plan, the 1999 Non-
Employee Director Option Plan, the International Employee Stock Purchase Plan
and the Employee Stock Purchase Plan, the Registration Statement (Form S-8 No.
333-83115) pertaining to the Diffusion Corporation 1995 General Stock Option
Plan, Diffusion Corporation 1995 Executive Stock Option Plan and the Diffusion
Corporation 1997 Stock Option Plan, the Registration Statement (Form S-8 No.
333-91767) pertaining to the 1999 Supplemental Stock Option Plan and the
Registration Statement (Form S-8 No. 333-30242) pertaining to the Engine 5, Ltd
1999 Stock Option/Stock Issuance Plan, the DataSage, Inc. 1996 Stock & Option
Plan, the DataSage, Inc. 1997 Stock and Option Plan and the Vignette Corporation
1999 Equity Incentive Plan of our report dated February 4, 2000, with respect to
the consolidated financial statements of DataSage, Inc. for the years ended
December 31, 1999 and 1998 which is included in the Current Report (Form 8-K/A)
dated March 30, 2000 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Austin, Texas
March 28, 2000
